Nicaragua forges ahead on canal that would remake world trade

Fisherman Pedro Luis Gutierrez gazed from his porch on the Pacific Ocean and conjured up a vision: Some day, mammoth oceangoing vessels will sail in from afar and vanish into a canal piercing the jungle.

Fisherman Pedro Luis Gutierrez gazed from his porch on the Pacific Ocean and conjured up a vision: Some day, mammoth oceangoing vessels will sail in from afar and vanish into a canal piercing the jungle.

“The ships will cross over there in the middle of the beach,” Gutierrez said with the cocky assurance of someone who’d heard a lot about a plan to build a rival to the Panama Canal in Nicaragua.

For now, it’s a mirage. But while few outside Nicaragua took seriously the announcement last year that a Chinese company had won a 50-year renewable concession to build a canal, the plan is moving quickly. Scores of Chinese engineers have mapped the topography here, and deal-makers are scouring the globe for investors from an office in faraway Hong Kong.

Sometime later this year, President Daniel Ortega and Chinese telecom tycoon Wang Jing will decide whether to give the project a green light, possibly unleashing earthmovers on one of the largest engineering challenges the world has ever seen, comparable even to China’s enormous Three Gorges Dam.

The stakes are high: If the transoceanic canal gets the go-ahead, it might take a decade to build, gobble $60 billion and slice through vast stretches of tropical forest. At 180 miles, it would be more than three times the length of the U.S.-built Panama Canal. It also would accommodate supertankers and giant container ships that are far bigger than those the Panama Canal will accept when its expansion is complete next year.

For Nicaragua, a poor nation of 5 million people, the project may punch its ticket out of poverty, creating jobs and prosperity.

For China, the plan would mean easier access to crude oil from Venezuela and a greater foothold in the Western Hemisphere. Such geopolitical considerations may weigh more for China than the price tag.

“In the initial scenarios we looked at, you can see that up to a million people could be employed within the 10-year span of construction,” said Manuel Coronel Kautz, an engineer who heads the Transoceanic Grand Canal Authority of Nicaragua.

Coronel said that 300 to 400 professionals – including teams of Chinese geologists, British environmental experts and other foreign technicians and trade experts – were working on a gamut of financial, environmental and commercial feasibility studies.

Much of what they’re finding is cloaked in secrecy. Questions include: Who will finance the project? Is the Chinese government behind it? Will the public see an environmental impact study? Can natural rainfall and massive Lake Nicaragua sustain the water-operated locks of such a large canal?

The secrecy exasperates scientists, who warn that Ortega may be making a devil’s pact, swapping priceless environmental heritage and national sovereignty for speedy development.

“It’s not easy to analyze the problem because there is so little public documentation about the canal. The route isn’t known and feasibility studies haven’t been made public,” said Jorge Huete-Perez, a molecular biologist who’s the president of the Nicaraguan Academy of Sciences.

The list of worries is long: hurricanes, earthquakes, endless mounds of mud, salt-water filtration into Lake Nicaragua, angry displaced Rama and Miskito Indians, and a massive influx of Chinese workers, among them.

But there’s also anticipation, even euphoria, among some Nicaraguans.

“It is said that without the canal, we’ll grow at 4.5 percent a year until 2020,” said Kamilo Lara, an environmentalist and supporter of Ortega. “But with the canal, growth could be as high as 15 percent.”

Lara was among 21 Nicaraguan businessmen, academics and civil society leaders Wang invited on an all-expenses-paid trip to China in late October to learn more about the proposed canal. They remained at Wang’s side for much of the nine-day trip.

Wang, a 41-year-old entrepreneur, is the chairman of both Xinwei Telecom and HKND Group, the Hong Kong-based firm that holds the canal concession.

While Wang isn’t widely known in the West, his Beijing-based Xinwei has drawn high-level attention. Past and current Chinese party chairmen, premiers and Politburo members have visited the firm, an unusual honor.

As the Nicaraguans toured other enterprises with Wang – most notably China Railway Construction Corp., the second largest construction firm in China – group members said the entrepreneur was treated, in the words of one, “as if he were Mao.”

Wang says in media interviews that his company is acting alone.

“It is a strictly commercial project. There was no order from the Chinese government,” Wang told Hong Kong’s South China Morning Post in an interview published Oct. 27. McClatchy’s efforts to reach him were unsuccessful.

Some Nicaraguans came away with a different impression: As they saw Wang tootle about in a Rolls-Royce and receive red-carpet treatment from CEOs of companies far larger than his, they surmised invisible patrons.

“There is a relationship either with the government or with the military. That was obvious,” said Diego Vargas Montealegre, the president of the Nicaraguan-American Chamber of Commerce and a participant on the trip.

Awestruck by Wang’s influence and the displays of pomp on the trip, several Nicaraguans said they’d concluded China that itself is interested in the Nicaraguan canal.

“It made us all think: It’s a go,” Vargas said.

Back in June, after barely a week of debate, 61 Sandinista lawmakers voted in bloc to grant Wang’s HKND Group a concession to design, build, operate and manage the canal and a series of related projects, including two deepwater ports, airports, an oil pipeline, six tourism developments and free trade zones. The 50-year concession is renewable. After a decade of operation, Nicaragua would gain 10 percent ownership of the canal, and roughly 1 percent each year afterward.

Carving a canal across Nicaragua is a long-standing dream.

“There have been 23 attempts through history to build the canal. And in every single case, the interest has been of a foreign power,” Huete-Perez said.

Among six possible routes that HKND Group is exploring, all use Brito Inlet as the Pacific outlet, and all traverse Lake Nicaragua, the largest freshwater body in Central America. The lake is shallow – its average depth is about 30 feet – so a channel would need to be dredged through parts of the lake bed, in some places as deep or 50 or 60 feet.

The ancient lake embodies some of the environmental and safety concerns the project confronts. Some 38 species of fish, three or four of them unique to the lake, dwell in the 3,166-square-mile body of water. Its most famous inhabitants are freshwater Caribbean bull sharks and prehistoric-looking sawfish, although most, if not all, have been fished out.

The lake’s waters are turbid, a sign of massive silt erosion from the surrounding watershed. Thousand of tons of runoff spill into the lake each day, which would require constant dredging.

Fierce winds often roil the lake’s waters.

“There are times of the year when the wind is such that waves are 4 meters (13 feet) high,” said Salvador Montenegro Guillen, the director of the Center for Research on Water Resources at the National Autonomous University of Nicaragua.

Montenegro said such winds might pose peril to huge ships.

“Ships that big are vulnerable,” he said. “The wind can catch them and blow them off-course.”

Even a small oil spill would ruin the lake as a resource for irrigation or drinking water, and Montenegro said a spill might take two decades to clean up.

Two volcanoes tower from Ometepe Island within the lake, a reminder that Nicaragua straddles a geologic hot spot. One of the volcanoes, Concepcion, spit out ash in 2009 that coated three villages. Its last major eruption was in 1880. The other volcano, Maderas, is dormant. Earthquakes and hurricanes also afflict Nicaragua. A 1972 earthquake shattered the capital, Managua, and Hurricane Joan lashed the nation in 1988.

Skeptics of the canal plan cite the seismic and climatic conditions.

“I don’t think the canal will ever be built,” Panamanian Foreign Minister Fernando Nunez Fabrega said in an interview in October.

Even if it is built, he added, its financiers would be hard-pressed to compete with the Panama Canal, which will double its capacity when an expansion is complete in mid-2015.

“Can you imagine getting into a pricing war?” Nunez Fabrega asked. “When you say, ‘We’ll charge a dollar a ton,’ and the guy next to you says, ‘I’ll charge 10 cents’?”

Some of Nicaragua’s most renowned scientists are apprehensive about how the proposed canal may scar the landscape and pollute the lake, a potential source for irrigation for much of Central America if climate change worsens.

“We fear that the ecological alterations will be quite irreversible,” said Jaime Incer Barquero, a former environment minister.

By cutting a 1,600-foot-wide canal across the nation’s midsection, biologists say, the Mesoamerican migratory corridor will be severed, separating the gene pools of some fauna, such as tapirs and jaguars, weakening their populations.

Also at issue is where to deposit the vast quantities of excavated soil and rock from construction. The canal will require a channel more than 65 feet deep that climbs up to the lake at 102 feet above sea level and through a range of hills before emptying into the Atlantic side.

“Where are we going to put these millions of tons of mud?” Incer asked.

Even proponents of the canal acknowledge that it will leave a heavy imprint.

“The environmental impact is inevitable and will be strong. But it will be temporary,” said Coronel, the engineer who’s the canal’s administrator. “After three or four years, it will be better than it was before.”

“In the end, you have to be clear that the reason for the canal is to help people. People will live better lives after construction,” he added.

Price competition between canals in Nicaragua and Panama would drive down shipping costs, and vessels going from one U.S. coast to the other would save two days by taking the shorter journey through Nicaragua, he said.

“In a ship that costs a million dollars a day (in operating expenses), this has an impact,” Coronel said.

Whether the canal is built may hinge on factors other than the difficulty of construction, the expense or the environmental impact. Rather, experts said it might depend on China’s reaction to Washington’s military “pivot” toward the Far East, and whether China sees an imperative to open a trade route to the Americas for Venezuelan crude and other raw materials that isn’t dependent on access to the Panama Canal, which it sees as under Washington’s domination.

China has never believed that the Panama Canal and the Panama Canal Authority are independent of U.S. influence, said R. Evan Ellis, the author of the 2009 book “China in Latin America.” “There’s a certain value to having their own canal,” he said.

Such geopolitical factors may mold the decision.

“It may not be viable economically and deplorable from an environmental point of view, but China may feel it needs this anchor in Central America,” Huete-Perez said.